Human Capital Management (HCM)

The business eco-system and HCM

The frame of reference of ecosystems is a metaphor to describe business processes from an evolutionary perspective. I will use it to distinguish two different strategies that are relevant for understanding the position of human capital management within the broader scope of general management. In the text below, I will use the terms “HCM” and “HRM” – Human Resource Management – interchangeably.

R-strategists
The term R represents the reproduction rate of species within the ecosystem. R-strategists exploit resources rapidly, and succeed best by exploring the habitat (the market) quickly. They reproduce rapidly to use the resources before other competing species (companies) exploit the habitat, or before it disappears completely. R-strategists disperse in search of other new habitats as the existing one becomes inhospitable (outsourcing to other economies, when market conditions become too restrictive).

K-strategists
K-strategists operate in longer-lived habitats, such as for example, an old forest, a traditional rural society, or in terms of De Geus (1997) a living company. Those of the species, with which they interact, are consequently at or near their saturation level K, which represents the carrying capacity of the habitat (the capacity of the ecosystem). It is important for them to honor competitive ability, in particular the capacity to seize and hold a piece of the environment (market) and to extract the energy produced by it. A K-strategy enables companies to learn from experience and to store memories. Companies, managed by K-strategists, become increasingly complex and need a longer period to mature. They need to invest more in training and educating their staff, to sustain a viable knowledge community that stores memories. They engage in a larger social investment as compared to R-strategists, and gradually become more valuable. They are characterized by a longer period of vulnerability (Gould 1977). Sustaining social networks is an example of a K-strategy. For a social system such as a company, which is produced and reproduced by its internal and external stakeholders, it is important to assess in which phase of development it sees itself. Mature industries such as, the banking and insurance business are for various reasons in favor of pursuing a K-strategy. One important reason is that building and sustaining trust with individual and corporate clients takes much time, and requires a continuous effort.

Strategic position of HCM

The various strategic factors that influence human captial management are illustrated in the figures below. Societal changes, institutional reforms in government, and new rules of corporate governance impact in various ways on industry. We have seen radical changes in the internal organization of many multinationals, due to mergers and acquisitions, and internal restructuring. They have offset fundamental transformation processes in business, and new approaches to corporate governance, accountability included. Due to volatile market conditions, management is increasingly involved in a continuous process of strategic positioning. The resource-based approach to the firm offers an interesting perspective on strategic management. The focus of the field is shifting from strategic positioning in a competitive market game to the focus on the firm’s unique resources and capabilities. That strategic game is a resource limited, goal-directed game of invention and communication. Particularly the human resources are considered the main repository of the organization’s knowledge (capital) to address future challenges. Strategic management and the resulting organizational change can only be successful if human resources are managed adequately. Rapid technological developments offer both opportunities and risks. Strategic human resources management is becoming the key to success especially in knowledge intensive sectors of the economy such as banking, and insurance. Strategic HRM defines the short- and long-term demand of human resources, which have to be balanced by internal and external supply of competent staff.

Factors influening HCM/HRM:

Human Resources Planning:

Strategic HCM/HRM:

KMPC has developed a family of Human Capital Management games (PERFORM) to learn managers dealing with questions of strategic HRM.

For more details about “Human Capital Management”, see Chapter 9 of the book: 
The Magic Circle: Principles of Gaming & Simulation